FROM COMPLIANCE TO
COMPETITIVE ADVANTAGE
An Evolutionary Approach to Risk Management
Transformation Strategies
1
Take Control of Data, Take Control of the Business
Figure 1
How is your institution viewing and
responding to the new macro-prudential
requirements?
Source: Risk Magazine, February 2012
60%
47.1%
40%
40.0%
2.3%
7.4%
Other
3.2%
Considered an unnecessary burden while
we are still recovering from the crisis
Evaluating the risk-adjusted return and viability
of our different lines of business
As an opportunity to differentiate ourselves
from our peers in the industry
0%
Doing the bare minimum required
for compliance
20%
We’re at a critical turning point for risk, finance and
compliance functions in the banking sector. Faced
with the dual pressure of increased regulatory
activity and ongoing economic pressures,
organizations are looking to transform the role of
these activities by bringing them under a single,
enterprise-wide framework.
Oracle provides a clear, scalable solution: A framework that evolves with the business,
accommodates existing third party or in-house applications, and provides a consistent,
long-term environment for all risk activities. Above all, it offers complete visibility
and control over data irrespective of the source application.
It’s hardly surprising that so many banks plan to transform their risk function.
Consolidating disparate activities has the potential to accelerate and drive down
the cost of compliance and deliver real competitive advantage. The results of a
recent survey indicate that nearly 50 percent of nancial institutions have identied
compliance as an opportunity to differentiate themselves from the competition (figure 1).
Like any challenge on this scale, the ability to execute against the regulatory change
will determine the future winners. This is no longer just about ‘rule compliance’, but
regulatory compliance becoming part of “business as usual”.
This necessitates the accuracy, completeness and availability of data that supports
risk and nance and business activities across the entire enterprise. From stability and
systemic risk, to supervision and corporate governance, it presents a hugely complex
challenge to the people charged with delivering to this goal.
Data: The lifeblood of the business
Many entities retain systems that lack a holistic view of data and continue to struggle
against an existing siloed approach where each solution is associated with its own set
of applications. In addition, organizations lack a credible alternative to short-term
tactical xes and wholesale rip-and-replace deployments. In short, where there is no
control of data, there is no control of the business.
Regardless of the way you look at these issues, from business challenges to regulatory
driven infrastructure initiatives, the ability to work with consistent, traceable, highquality data that can be shared easily across multiple activities is the key to success.
2
What’s Broken and How Do We Fix It?
An evolutionary approach to enterprise-wide risk management
Oracle offers a clear alternative to short-term tactics and wholesale replacement.
Instead, banks can take an evolutionary approach aligned to their compliance pipeline
and wider business objectives. This solution, which addresses pressing compliance
issues, including Basel III and the Dodd-Frank Act, also establishes a common data
model, infrastructure and business intelligence layer.
These common building blocks ensure data consistency, traceability and availability
across any application running in this environment (figure 2). They also extend
return on investment of existing software investments, accommodating high-value
intellectual property within the target Oracle environment.
Basel
Economic
Capital
Corporate
Credit Risk
Figure 2
Liquidity Risk
Using a shared data model,
infrastructure and business
FINANCIAL SERVICES BUSINESS INTELLIGENCE
Data Sources
Unified Analytical Metadata
Report
Alerts
Dashboards
intelligence layer across multiple
Embedded
risk activities
FINANCIAL SERVICES ANALYTICAL APPLICATIONS INFRASTRUCTURE
Computations
Common Tools
Business Rules
Stochastic Modeling
FINANCIAL SERVICES ANALYTICAL APPLICATIONS DATA MODEL
Common Objects
Common Dimensions
Pre-Integrated/
Extensible
High Volume
Each application shares a common data model, infrastructure and business intelligence layer. These common building blocks are
fully leveraged from application to application to ensure data consistency, traceability and availability throughout the enterprise.
This results in a fundamental shift in perspective. Instead of building a tactical solution
from the bottom up, a coordinated risk platform enables you to reach back through the
information management lifecycle. The bank can start with the end in mind, focusing
on the usage case rather than the technology required to deliver it (figure 3).
Figure 3
Required data elements
Appropriate data
quality checks
Needed reconciliation
process
Needed value-add
computations
Desired use cases
(outputs)
to ensure relevant outputs
can be generated
to ensure sanctity of
data for outputs
to ensure results
tally to GL
to produce the
outputs
in a given
subject area
Corporate credit pick
Business before technology:
Beginning with the end in mind
Retail credit pick
Finance Treasury
Marketing
It also ensures that banks can squeeze maximum value out of data throughout the
information management lifecycle, while ensuring data longevity and reusability
whenever required. It encourages teams to seek out new business opportunities safe in
the knowledge that their risk platform can adapt quickly to support these endeavours.
3
Evolution to the Next Level of Enterprise
Risk Intelligence
The Oracle risk platform offers a flexible, evolutionary
alternative to other platforms that require the wholesale
migration of applications to a new environment. At
the same time, it significantly reduces the cost and
complexity involved in managing multiple, rolling
risk activities.
It also unburdens risk and technology teams from the endless cycle of ‘design, deliver,
deploy’ that contributes to substantial professional and personal pressures.
Speed to deployment, speed to information
Oracle’s unied risk platform is highly congurable, but delivered out-of-the-box.
This signicantly reduces the time associated with the deployment of in-house
systems or those that involve the integration of technologies from diverse suppliers.
Oracle’s heritage and clear technology roadmap ensures that every element, from data
warehousing to analytics and reporting, is based on best-of-breed technologies.
At the same time, banks can choose to integrate Oracle’s technology with external
calculation engines and/or hosted models (figure 4).
Figure 4
Interaction with external engines
ANALYTICAL APPLICATIONS INFRASTRUCTURE
(Data Quality Management, Metadata Management, Stress Testing F/W, Modeling F/W, Run F/W etc)
and hosted models
Staging Area
Common
input area
for analytical
processing
Application-specific processing Area
Oracle calculation engines & models
Hosted models
External calculation engines
4
Results Area
Results for
consumption
Focus on business, not on technology
Oracle offers nancial institutions an unprecedented opportunity to progressively
migrate existing risk activities and applications to a single target architecture. Oracle
can also draw on extensive global teams of risk technology experts who work with our
clients to understand the organization’s risk pipeline, addressing imminent regulation
while sharing insights into risk best practices and market opportunities.
Maximizing the value of data
Data is the lifeblood of the business. It changes constantly over its lifetime as it is
used and reused by different parts of the organization. The Oracle risk framework
ensures that data is consistent and transparent whenever and wherever it is used.
It also ensures that data is traceable and always available to different areas of the
organization or new use cases when required.
Reducing total cost of ownership
Oracle delivers a signicant reduction in total cost of ownership (TCO) compared
with other risk management platforms.
Banks can extend the return on investment of existing intellectual property by
hosting existing third party or in-house developed solutions within the target Oracle
architecture. Once migrated, these solutions sit under a consistent architecture that
supports a common view of all activities.
This removes the need to call on large teams of developers when deployment is
complete. Changes can be made at the business level based on pre-existing templates
and user-dened business rules that correspond to key compliance activities. Oracle
continues to develop templates in line with changing business and risk management
needs so that a bank has all the tools it needs to keep one step ahead of new regulations.
Sophisticated, rapid information analytics
The exibility of Oracle’s information analytics tools ensures that risk managers have
on-demand insights into the risk positions of the enterprise. As the importance of near
real-time risk information gathers pace, this ability is more critical than ever. Today,
complex liquidity scenario analysis and stress testing often needs to take place in realtime. Oracle supports banks in this drive to meet growing regulatory demands for
timely and reliable information.
5
Heritage, Innovation, Expertise:
The Foundations of a Solid Technology Partnership
“In following a structured process, it
enabled us to translate operational and
strategic concepts into usable business
impact numbers.”
EMEA Financial Services company
In the coming months and years, the decisions that
banks make about investments in risk management
systems will play a central role in the reputation,
resilience and profitability of their organizations.
Partnering with an organization that has an outstanding reputation and deep expertise
in the financial sector is more important than ever.
Enterprise risk expertise
Attention to detail is everything. Oracle takes a comprehensive, but highly focused
approach to risk based on our in-depth knowledge of this marketplace and an
extensive network of global partners. Our enterprise risk management solutions
span all areas of risk, including credit, market, operational, liquidity, xed asset, and
business and reputation risk. They enable institutions to manage all these activities
and provide necessary feeds for compliance-based reporting.
Financial sector knowledge
All of the world’s top 20 banks run Oracle software in the pursuit of streamlined
business processes and improving overall efciency. Oracle is a specialist in the
enterprise risk management space, helping banks worldwide comply with new
regulation, while maximizing the business opportunities available through these
changes. Some of the world’s largest banks use Oracle today for a diverse set of needs
from risk calculations, stress tests and performance management to nancial crime and
compliance management.
Our comprehensive nancial services analytical applications cover the entire risk
information spectrum including management, performance management, customer
relationship management, and governance and compliance (figure 5).
Figure 5
Performance Management and Finance
• Profitability
• Funds Transfer Pricing
• Activity-Based Costing
• Budgeting and Forecasting
Oracle financial services analytical
applications cover the entire risk
Loan Loss Forcasting
information spectrum. A single,
Hedge Management
IFRS 9 - IAS 32/39
consistent view of data also enables
banks to focus on urgent tasks where
key activities overlap.
• Consolidation
• Reconciliation
Credit Risk
• Retail Credit Risk
• Corporate Credit Risk
RAPM
• Accounting Hub
Pricing Management
Customer Profitability
Performance
Management
Balance Sheet
Treasury Risk
Planning
• Market Risk
• Asset Liability Management
• Liquidity Risk Stress Testing
Risk Management
Customer Insight
Channel Insight
• Channel Usage
• Channel Performance
Regulatory Capital
• Basel II
• Retail portfolio Risk
Models and Pooling
Economic Capital
• Economic Capital
Advanced (Credit Risk)
• Operational Risk
Economic Capital
Stress Testing
ICAAP
Governance &
Compliance
Regulatory Compliance (Financial Crime)
• Anti-Money Laundering • Fraud Detection
• Broker Compliance
• Trading Compliance
6
Analytical CRM
• Portfolio Analytics
• Marketing Analytics
• Service Analytics
Know your Customer
Governance and Compliance
• Operational Risk
Innovation and the long term roadmap
Innovation means investment. In 2011, Oracle spent U.S.$4.7 billion in research
and development, ensuring that customers benet quickly from the latest advances
in information technology. This applies especially to nancial services customers
where innovation must be balanced with evidence that systems are robust and secure
enough to meet the needs of banking in a post-crisis world. Oracle’s presence across
the technology stack, from applications right down to the disk, enable it to provide
optimizations which are not possible for other siloed application-only providers.
This ensures the delivery of comprehensive and extreme performance enterprise risk
solutions for banking that become a strategic platform for growth. They enable the
institution to respond rapidly to market events as well as regulatory demands such as
periodic stress tests.
Taking the Next Steps: Oracle Insight Program
With a focus on nancial data and analytics, the Oracle Insight Program is
a comprehensive business strategy development program. It gives banks the
opportunity to work with Oracle business and IT strategy experts and identify critical
performance objectives and challenges. These insights enable project teams to dene
their unique business needs and understand how technology can support project goals.
Our rst job is to listen. We work closely with risk and IT stakeholders in the bank so
that we can bring the right blend of industry experience and technical skills directly
to customers. This ensures that the Oracle Insight team can identify the skills needed
to transform business or IT operations and quantify the nancial impact that can be
achieved with these capabilities.
“It lends credence to what the
IT Department has been telling
management. Therefore the
chance of getting top management
support has increased.”
JAPAC Financial Services company
The Oracle Insight Program offers banks the following benets:
• Gain consensus and alignment with business and IT teams. Help different risk
and IT groups agree on key areas of focus and support a collaborative decisionmaking process.
• Develop a compelling value proposition and business case to move forward on
a project. Translate operational and strategic concepts into objective, universally
understood impact metrics.
• Assist with the strategy and solutions needed to enable risk management
transformation. Develop strategies that solve imminent and emerging risk
challenges and win top executive support.
• Evaluate key business and technology initiatives. Establish the ground rules for
development and deployment of new solutions, ensure the longevity of existing
intellectual property investments, and help prioritize resources and budgets.
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Contact Us
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